On Wednesday, the Bitcoin community went into a tizzy over BIP 75 (BIP stands for Bitcoin Improvement Proposal), which is, in short, a layer-2 protocol for improving the user friendliness of Bitcoin payments.

Before getting into the controversy, it’s important to understand the details of BIP 75. Bitcoin Magazinereported on the proposal’s ability to simplify wallets for the average Joe earlier this year, but here are the key points:

BIP 75 attempts to solve some of the privacy and security concerns with the Payment Protocol, which was outlined by former Bitcoin Core lead maintainer Gavin Andresen and former Bitcoin developer Mike Hearn in BIP 70.

There are currently two separate concerns with BIP 75 being discussed in the Bitcoin community. For one, some people believe that this BIP could make it easier to trace Bitcoin payments to real-world identities or simply streamline KYC and AML compliance for Bitcoin. The other issue is whether this BIP should be included in the main BIPs section of the Bitcoin Core GitHub repository.

“I'd strongly argue that we remove BIP 75 from the BIPs repository, and boycott wallets that implement it,” Peter Todd recently stated on the Bitcoin development mailing list. “It's bad strategy for Bitcoin developers to willingly participate in AML [and] KYC [compliance], just the same way as it's bad for Tor to add wiretapping functionality, and W3C to support DRM tech. The minor tactical wins you'll get [out] of this aren't worth it.”

A Reddit thread linking to that post on the Bitcoin development mailing list was quickly filled with calls for a boycott on Breadwallet.

Bitcoin Magazine reached out to Todd to gain a clearer picture of his thoughts on the matter. In terms of whether the BIP should be removed from the Bitcoin Core GitHub repository, Todd said, “I think we should remove it because like it or not, we are putting a stamp of approval on it, to a degree.”

Some others, such as Bitcoin Core contributor Pieter Wuille, believe a removal would amount to censorship; however, Todd also pointed out that, in the past, a proper BIP for a colored coins standard has also been denied access to the GitHub repo.

When it comes to the issues he sees with BIP 75 more generally, Todd said, “BIP 75 institutionalizes [regulatory compliance] in a convenient way that everyone can easily use and expect. We should comply with AML [and] KYC [regulations] only grudgingly.”

“In much the same way that we have the threat of Tor nodes keeping logs; we don't help that process by creating a standard for those logs,” Todd added.

To Todd’s point, BIP 75 does make it easier for companies (financial in nature or not) to collect data on their customers. While the threat of a government forcing normal retailers to collect identifying information about customers who use Bitcoin always existed, BIP 75 has the potential to streamline this process.

During his conversation with Bitcoin Magazine, Todd made it clear that he’s more concerned with senders of bitcoins identifying themselves than the recipients of those funds. “The part of BIP 75 that's about determining who you're sending money to isn't objectionable, just the idea of trying to figure out who is actually sending the funds,” he stated.

Those who disagree with Todd would point out that BIP 75 is a completely opt-in protocol. To this point, Todd responded, “Blacklists can also be implemented in an ‘opt-in’ way; that doesn't mean we should support the concept.”

BIP 75 Author Responds

Bitcoin Magazine also reached out to one of the authors of BIP 75, Netki CEO Justin Newton. One of the first things Newton was able to clarify was that the personally-identifying information sent in the payment protocol can be seen only by the sender and receiver involved in a particular transaction.

“We actually added another layer of encryption (at the application layer) as a way to protect against the data being man-in-the-middled,” said Newton.

According to Newton, a BIP 75 user does not even have to trust his or her own phone or laptop to keep payment info private when a hardware wallet is used.

Newton also shares similar concerns to Todd and others in terms of a potential slippery slope toward AML and KYC compliance on the vast majority (if not all) of Bitcoin transactions.

“I actually share their concern, but it led me to a different conclusion,” said Newton. “My view was that AML and KYC compliance is going to be required if we want to get to the mass market, and we need to ensure it is done in a way that fundamentally protects fungibility, privacy and the open, permissionless nature of Bitcoin. In the absence of a standard that encourages those values, we will end up with hidden systems that do exactly the same thing, but without taking the concerns of the community into account.”

Judging from a Reddit comment by Breadwallet CEO, the wallet maker is not interested in BIP 75 for regulatory compliance reasons. Instead, Breadwallet is mostly interested in the proposal for reasons related to the user-friendliness (or lack thereof) of Bitcoin wallets. BIP 75 enables useful features that are found in more mainstream payment applications (think Venmo) such as human-readable transaction logs and address books. It’s also possible for users to manually track their transaction history on their own, but BIP 75 greatly simplifies the process.

So, Is BIP 75 a Worrisome Proposal?

The BIP 75 debate ties in with many of the other Bitcoin debates that have taken place over the years. Does the community want privacy and security or easy-to-use wallets? Is it worth abandoning some of the early principles of the network in order to seek mass adoption?

In this case, it appears that not much of a trade-off is being made by individuals who wish to use BIP 75-enabled wallets. All of their personal information is end-to-end encrypted, and they aren’t likely giving up much (if any) information that wouldn’t already be known by the recipient of a transaction. Also, it’s important to remember that this is a layer-2, opt-in protocol.

Having said that, it’s always important for the Bitcoin community to remain vigilant against attempts to apply traditional financial regulations to the Bitcoin blockchain. After all, Bitcoin’s core value proposition is the ability to transfer value across the internet in a censorship-resistant manner. The people who need Bitcoin as a payment system are those who would normally be blocked from other, traditional systems such as PayPal or credit cards.

It appears that BIP 75 is not a huge move in the wrong direction, but all Bitcoin users should refrain from attaching identifying information to their transactions as often as possible. In addition to that, it wouldn’t hurt to focus on the real problem, which is the need for enhanced privacy features.

The Hyperledger Project, led by the Linux Foundation and aimed at the development of an enterprise-grade, open source distributed ledger framework and codebase, recently announced that seven new members have joined the project.

New members are INVeSHARE, MonetaGo, Swedish developer Norbloc, the Moscow Exchange, and three Chinese firms: BitSE, Belink Technologies and Onchain.

“The enterprise application of blockchain technology is set to change the way we conduct business and will have a profound impact across all sectors of business,” said Brian Behlendorf, executive director of the Hyperledger Project. “To be able to welcome this many new members each month is not only a testament to what we are doing but is paramount to our success in developing distributed ledger technology for the world.”

The growing global dimension of the Hyperledger Project, with its new Russian and Chinese members, seems especially interesting. In fact, while payment and financial applications of distributed ledger technology are relatively well established in Europe and the English speaking world, new applications beyond finance, such as smart contracts, e-voting and the Internet-of-Things (IoT) as well as new markets such as (the potentially huge) Chinese market, are likely to attract more interest and investments in the coming year.

The Moscow Exchange, formed in December 2011 by merging the Moscow Interbank Currency Exchange (MICEX) and the Russian Trading System, is the largest exchange group in Russia; operating trading markets in equities, bonds, derivatives, the foreign exchange market, money markets and precious metals. The Moscow Exchange Group also operates the National Settlement Depository (NSD), Russia’s central securities depository, and the country’s largest clearing service provider (National Clearing Center).

In May, Bitcoin Magazinereported that the NSD developed and successfully tested an e-proxy voting system running on a distributed ledger built with the NXT distributed cryptographic platform.

“Moscow Exchange is excited to join the Hyperledger Project,” said Sergei Poliakoff, CIO of Moscow Exchange. “We believe in the future impact of distributed ledger technologies for the whole financial industry. Our team has been exploring possible applications of blockchain in trading, clearing and settlement. We’re looking forward to working with this robust community to further Hyperledger’s vision and shared ledger technology.”

Shanghai-based BitSE, established in 2013 by founders from IBM, Alibaba and Louis Vuitton, developed Blockchain-as-a-Service (BaaS) applications. The company operates a research lab focused on distributed consensus, distributed applications and smart contracts. The company’s products include VeChain, an anti-counterfeiting solution. BitSE is also developing blockchain development and running environment Quantum, smart contract applications and private blockchains. Earlier in June, BitSE established a partnership with PwC China to create a team of 50 specialists and bring one-stop blockchain technology solutions to the China market.

“Blockchain technology is likely to take human beings to a new big era of an economy republic; Hyperledger is the foundation writing the constitution," said D.J. Qian, co-founder and CEO of BitSE. “With an R&D team of blockchain, coming from nine different countries, BitSE is more than happy to be part of it as one of the pioneers and willing to contribute thoughts, codes and anything that matters to accelerate this evolution and reformation.”

Belink Technologies is a financial information service provider operating a distributed ledger technology for enterprise registration and the distribution of non-cash digital assets. “Using an open source framework for distributed ledgers could reduce the technical threshold of application innovation and promote the establishment of uniform standards,” said Chen Hua, CEO of Belink. “Belink is especially pleased to become an active participant in the Hyperledger Project, as the need to adopt distributed ledger technology to help institutions carry out financial service innovation in China grows.”

Onchain, a blockchain technology startup in China, developed the AntShares project for registration of digital assets. The project is described in a white paper (Chinese only) and its open source code, distributed under the MIT license, is available online on Github. “As a leading open-source contributor in China's blockchain community, Onchain shares the same values as the Linux Foundation and the Hyperledger project intrinsically,” said Da Hongfei, founder and CEO of Onchain. “We believe international collaboration plus local experience are key to the adoption of distributed ledger technology in China. We are also very excited to see other Chinese blockchain startups join Hyperledger and look forward to adding our combined expertise to the project.”

There are many types of applications that people want to build with blockchain technology but only a minor fraction of these projects have found any use in the real world. While there are plenty of techno-geeks who think it’s cool to play around with various cryptocurrencies and blockchain-related projects, Bitcoin seems to be the only blockchain system that has seen use outside of those who are tech-savvy.

“We see that a lot of the people that are using Bitcoin (locally and looking at the exchanges) are using Bitcoin because they need to use it,” DeRose said. “They have to use it because they can’t use fiat.

“This is what has differentiated Bitcoin from other blockchain projects, in that Bitcoin fulfills a need,” DeRose added.

Some areas where Bitcoin is truly needed include online gambling and darknet marketplaces. These sorts of use cases also fuel the view of Bitcoin as a digital gold.

Fungibility a Huge Part of This Need

When it comes to the situations where Bitcoin is needed, fungibility plays a huge role. DeRose referred to this use case as “the ability to convert value into anonymous value.”

When asked about the importance of fungibility in Bitcoin, Todd said, “Yeah, I think that’s Bitcoin’s main use case there. If you didn’t have that as a need, you could just go use PayPal.

“The most clever thing governments could do to kill Bitcoin is make anonymous, electronic cash,” Todd added.

Of course, it’s also true that there’s plenty of room for improvement in terms of Bitcoin’s fungibility. New privacy improvements, such as Confidential Transactions, may eventually offer assistance here. JoinMarket, a market for CoinJoin transactions, is another project that is already helping users gain more effective privacy on the blockchain right now.

Governments Subsidize Bitcoin with Their Regulations

Since Bitcoin is mostly needed in situations where fungibility is a must, it isn’t much of a stretch to say that governments essentially subsidize the usefulness of Bitcoin because government-backed restrictions and censorship on financial transactions are a major factor in the need for a fungible bearer ecash.

When asked if he thinks governments are issuing regulatory subsidies for the existence of the Bitcoin blockchain, Todd responded, “I think that’s pretty much exactly what’s happened.”

Todd then went on to talk about the abandoned MintChip project in Canada, which was essentially an attempt to create an anonymous, electronic cash system. “It appears they axed [the project] because nobody wanted to go and create anonymous, electronic cash. They just didn’t have the willpower to do it,” explained Todd.

Does Bitcoin Have Government to Thank for Its Existence?

This gets to the question of when it makes sense to use a blockchain. Are they still useful in a world where governments allow anonymous ecash to exist at a large scale? “It may only make sense when the regulatory environment allows it to make sense,” DeRose noted.

Todd put this thought experiment another way: Would Tor be interesting or useful if governments didn’t wiretap their citizens? The answer here is obviously yes because governments are not the only “adversaries” in the world. The Tor Project has a list of the types of people who use the anonymizing network on their website.

While there may be some use cases of bitcoin that don’t involve getting around government regulations, it’s clear that these government-avoiding use cases are what propelled Bitcoin to what it is today. Bitcoin first rose in popularity due to Silk Road and the financial blockade on Wikileaks. Silk Road allowed Bitcoin users to buy and sell goods and services that had been criminalized by various governments around the world, while Wikileaks is a journalistic organization that runs on donations ‒ strictly via bitcoin during the financial blockade.

It’s unclear whether Bitcoin would have taken the digital world by storm if these sorts of use cases didn’t exist early on in the technology’s development. The level of distrust in the world’s financial system at the time (and to this day) also couldn’t have hurt.

Wednesday, 29 June 2016

We Sit down with Cody Wilson and the DD crew including Paloma Heinsdorff and Joel Williamson.We cover several topic, Ghost Gunner 2, Brexit, DAO, the recent DD court hearing and Gender Fluid Bathrooms at DD. This is a very light hearted and funny episode we had a blast doing.Christopher David also stops in breifly for the latest and to have a few laughs with us.Original air date 6/29/16 on LogosRadioNetwork

China’s government has signaled that it is warming up to digital currency with a new proposed civil law that may recognize people’s legal right to own virtual assets, including digital currencies.

A new draft of China’s civil code was introduced in The National People’s Congress June 27. The draft will reportedly designate all virtual networks, data and information as property equal to physical and other financial assets, bringing them under the jurisdiction of civil rights that are applicable to property in general.

OKCoin founder and CEO Star Xu told Bitcoin Magazine that the new draft law is good news saying:

"The central bank defined Bitcoin as a "virtual commodity" in 2013; however, digital assets are different from traditional properties in a sense due to their virtual features. That makes it difficult to be incorporated into the traditional ‘object’ which is normally categorized as ‘chattel’ and ‘real estate.’

“Since the Chinese law have not clearly defined the virtual asset in the past, property disputes involving ‘virtual commodities’ are difficult to be resolved under the existing law. This proposed new civil law draft, which includes digital assets with legal rights, will contribute to the protection of such property rights while also establishing a framework for the development of future specific rules.

“It is the manifestation of legal progress in China and it will benefit the Bitcoin industry in the long term.”

The Chinese government has taken a wait-and-see stance until now, appreciating that China should not fall behind the rest of the world in innovations such as Bitcoin and blockchain technologies, but conscious, too, of the possible effect on China’s central currency, the yuan.

Huobi Chief of Staff Yue Wen told Bitcoin Magazine that:

“Without any doubt, the new draft of Civil Code is an improvement of Chinese law system, even though there is not much difference in enforcement until now. Based on our experience of cooperative investigation, bitcoins have been recognized as personal assets to protect in real cases. Policies will help to trace when citizens' bitcoins have been stolen.”

Yue Wen explained:

“Until now, the only legal document of Bitcoin was Notice for Preventing the Risks of Bitcoin, released by five commissions (People's Bank of China, Ministry of Industry and Information Technology of the People's Republic of China, China Banking Regulatory Commission, China Securities Regulatory Commission, China Insurance Regulatory Commission) in 2013, in which Bitcoin has been defined as visual commodity. Visual commodity is not an object of any law in China so far, so we don't think there is any big difference now in enforcement.”

He added:

“Also, the new draft is still a discussion version now, we're also paying attention to the progress and hoping for good news.”

In a recent interview, BTCC CEO Bobby Lee acknowledged that the Chinese government has been signaling acceptance of the growth of Bitcoin trading in China for some time. He told Bitcoin Magazine that the central bank, PBOC, has indicated that it is open to new innovations and does not feel threatened by digital currencies.

“I do think that it is great that the PBOC is looking into the technology behind Bitcoin. I think all central banks should look into this technology, and look into adopting existing digital currencies like Bitcoin as part of their basket of reserve currencies.”

However, ChinaLedger, a research and development consortium of Wanxiang Blockchain Labs in China told CoinDesk that the language of the proposed law is too vague to be certain that it will include digital currencies.

Roland Sun of ChinaLedger toldCoinDesk that although the proposed definition could be expanded to include digital currencies, he said there is a "long way to go" before such a legal definition could be enacted.

Sun told CoinDesk:

"I don’t expect a firm legislative recognition of the property rights of cryptocurrency [holders] in the next five or six years."

Despite these reservations, the Chinese government, so far, has not denied that digital currencies would be included in the new law.

In this Episode

A few days at the Porcupine Freedom Festival in New Hampshire netted a load of wonderful connections, some very interesting insights and a few very relevant interviews, from the perspective of the technology and choice pair.

First up in this episode is Sam Patterson, Chief Operating Officer of OB1, the company developing the Open Bazaar protocol and ecosystem. Sam shares some insights about the ideals of peer-to-peer commerce, shares some very encouraging news about the current real-world successes of the platform, and shares exciting news about the near future, which will make the ecosystem tons better still.

Next we spend some quality time with Larken Rose discussing his very ambitious and fabulously important project, The Mirror. This could be one of the most important projects in existence for opening human potential, so listen up and consider pitching in.

Finally, we speak with Jeremy Kauffman of LBRY (pronounced "library"). With their imminent launch of the LBRY platform, listeners are in a unique position to get in on the ground floor of what I found to be one of the most exciting practical applications of blockchain technology to come along recently. Content distribution is about to get a really great tool that everyone can use, even the "big guys." Listen for how to get an inside track on the launch for listening to this podcast.

Magic Word

Listen for the magic word, and submit it to your LetsTalkBitcoin.com account to claim a share of this week's listener award distribution of LTBcoin. Listeners now have a full week from the release date to submit a magic word. The magic word for this episode must be submitted by 10 am Pacific Time on July 6, 2016.

Music

Music for this episode: SafeProject an original piece composed and performed by Nicholas Koteskey of Two Faced Heroes

The top five blockchain crowdsales bore out of the Bitcoin 2.0 movement have raised more than a quarter-of-a-billion dollars in “initial coin offerings,” “token sales” and the like. Participants contend the blockchain tokens are going “to the moon.” Others argue, since they’ve never been registered, they run afoul of securities law.

The second largest crowdsale and best known, is Ethereum at $18,439,086. Ethereum developers say their blockchain is a distributed smart-contract platform “fueled” by a native digital currency similar to Bitcoin. Ethereum’s 2014 “Ether sale” preceded it’s May 2016 crowdsale for the DAO, a so-called “decentralized autonomous organization” managed via Ethereum smart contracts.

Ethereum and DAO developers currently face scrutiny in the wake of a $55 million compromise of the DAO by an attacker. They are deciding whether to intervene and undo the damage done by the draining of funds.

DAO token holders, who purchased the tokens with Ether, vote on “important decisions relating to the management of the DAO,” the project claims. The DAO had raised Ethereum worth over $200 million at the time of the attack.

The top five blockchain crowdsales: the DAO, Ethereum, WAVES, Lisk, Digix and Augur, have raised approximately $200 million. Nearly $170 million of that is Ethereum and the DAO.

Lisk, a cryptocurrency and decentralized application platform, raised $5,880,089 in an “initial coin offering” in 2016. Lisk founders worked on the code for three weeks before going public.

“In the following three weeks we built up enough momentum to start our crowdfunding,” Lisk co-founder, Max Kordek, told me. The crowdfunding went on for one month and Lisk brought in more than 14,000 bitcoins.

Developers say they are providing access to software, not securities. The literature is littered with finance and security terms. Securities laws are broadly interpreted and designed to be adaptable to the innovative ways people raise funds.

Congress developed federal securities law after the stock market crash of 1929. The speculative frenzy ending in the October 1929 panic, called “Black Thursday,”led Congress to enact the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1945 (the “Exchange Act”).

State blue sky laws, Securities and Exchange Commission rules and regulations, as well as regulations from the National Association of Securities Dealers (NASD) combine to create securities law.

SEC v. W.J. Howey Co. (1946) set the precedent that an investment contract entails the giving of money to others who manage and control the funds with the expectation of profit.

Blockchain crowdsales market that token holders and “community” participants themselves, enjoy management and control of the blockchain software. Indicating that they, themselves, help build the blockchain platform over time. DAO participants, for instance, use Ether toward the DAO projects they support. Lisk says that participants earn Lisk for bug bounties.

If blockchain crowdsale participants enjoy management and control, then it’s arguably not an investment contract or security. Still, developers generally lack management and control over an enterprise in the real world.

Jason Seibert, a lawyer who serves on Bitcoin and securities cases, described a typical blockchain crowdsale: “Hey, give us some money and we are going to develop something. We are not quite sure what it is yet but when we do, you’ll be able to use this stuff for it, even though we don’t know what it is yet.”

Even if the blockchain crowdsales are, in fact, crowdsales and not securities offerings, they must still be registered under the JOBS Act and regulation.

“Nobody thinks baseball card manufacturers print baseball cards with the intent of them being an investment,” the Oregon-based lawyer, who represented Trendon Shavers in the first Bitcoin criminal fraud case in the U.S., said. “Come on, it’s sold in a pack of gum! But everyone knows that people can collect them and trade them and make money off of them.”

Blockchain crowdsales come across much differently. They’re not bubble gum and pictures of athletes. “We’re talking about an investment opportunity,” Seibert says.

That the DAO smart contract platform was drained of $55 million and core Ethereum developers are considering implementing a fork to roll back the perceived heist, it remains to be seen if the “good deal exception” will soon expire. An SEC official commented June 20 that the $55 million attack against Ethereum underscores concerns over blockchain systems.

Thanks to the DAOs code, Ethereum developers could intervene and undo the $55 million drain. But that might be used in a court against them as proof they held control over Ethereum and the DAO. The DAO would not have truly been a “decentralized autonomous organism,” as advertised, and participants could then be seen as misled investors.

“You’ll generally hear an investor say, ‘Had I know this-or-that, perhaps I would not have invested,” Seibert explained.

With recent news surrounding The DOA and the Brexit vote causing a stir in the blockchain world and beyond, it seems like a regulatory update is due. So we called up our favorite regulatory affairs specialist Si?ƒn Jones to enlighten us on some of the recent developments in Bitcoin and blockchain regulation.

Topics covered in this episode include:

The Brexit and it's potential impacts on the Blockchain and Fintech space in the UK

The Bank of England opening its doors to more than a thousand financial institution and payment service providers

Some of the initiatives by the UK government to potentially adopt blockchain technologies

The recent European Parliament plenary sitting on virtual currencies and the Distributed Ledger Technology Task Force

An update on BitLicense and its impacts a year and a half after being adopted in New York

IBM on Tuesday announced a new Bluemix Garage in New York, located at Galvanize’s newly launched New York campus in SoHo. This enables developers and enterprises to work with IBM Blockchain code in the cloud. As with IBM's other garages in San Francisco, London, Nice and Toronto, the New York Garage will invite startups and enterprises to collaborate in a creative environment outside of their traditional office setting.

IBM is ramping up its efforts to become one of the top players in the emerging sector of distributed ledger technology. The company is a key member of Linux Foundation’s Hyperledger Project, a collaborative effort started in December to establish, build and sustain an open source non-Bitcoin blockchain. In February, Bitcoin Magazinereported that IBM was deploying a Blockchain as a Service (BaaS) for developers and making tens of thousands of lines of code available to the Hyperledger Project. In April, IBM announced new cloud services based on the company’s Hyperledger code and IBM’s cloud platform, Bluemix.

Bluemix, on which more than 120,000 apps are launched every month, is becoming one of the largest open, public cloud deployments in the world. Based in open standards, it features more than 140 tools and services spanning categories of big data, mobile, Watson, analytics, integration, DevOps, security and the Internet of Things (IoT).

To promote its Bluemix cloud services for blockchain development, the company launched a “Bluemix Garage for blockchain” initiative to “deliver business solutions that work” by combining industry expertise with blockchain technology along with proven development methodologies such as Design Thinking and Agile Development. IBM intends to deploy Bluemix garages in major cities worldwide as hubs where developers, product managers and designers can come together to build on Bluemix. The IBM garages will be open to local companies to visit, ask questions to IBM experts and see demonstrations of business solutions built on the “blockchain fabric” from the Linux Foundation Hyperledger project.

The blockchain garages will have a business-oriented, as opposed to technology-oriented, approach. “We will explain IBM’s Blockchain point of view in business terms, avoiding technical gobbledygook,” states IBM. “We discuss what blockchain can and cannot do for business. We will encourage a dialogue (we don’t like monologues!) to make sure we are on the same page.”

The idea is to persuade potential clients to rely on IBM for blockchain technology development and deployment: “If we decide we are on the same page, we can talk logistics to get the customer hands-on with blockchain.”

“Galvanize has been a great home and partner for IBM’s groundbreaking Bluemix Garage on our San Francisco campus, and we are excited to bring that partnership to New York City,” said Jim Deters, co-founder and CEO of Galvanize. “Having IBM’s Garage in New York City, within the Galvanize community, allows our strong network of developers and startups to leverage the power of the cloud and the expertise of IBM to competitively innovate products and apps in the growing fintech and blockchain spaces.”

The IBM press release notes that masses of developers, growing by 20,000 a week and projected to reach a global population of 25 million by 2020, are increasingly using Bluemix garages to tap into IBM Cloud APIs for blockchain technology, cognitive computing, IoT, unstructured data, social media and more to swiftly build and launch innovations.

According to IBM, blockchain networks will vaporize current frictions in the economy that are inhibiting business growth, propelling the movement of capital and exchange of value. The company is also announcing new blockchain projects developed, in partnership with IBM’s garage network worldwide, by Credit Mutuel Arkea in Nice, France and Mizuho Financial Group in Tokyo.

“Mizuho will explore how payments can be instantaneously swapped, potentially leading to new financial services based on this rapidly evolving technology,” notes the new IBM press release.

Mizuho Financial Group announced that it is collaborating with the IBM Garage in Tokyo to find out how payment settlements could be implemented near-instantaneously using the codebase developed by IBM for the Hyperledger project. The project will use a virtual currency pegged to the yen, developed by Mizuho. With this project, Mizuho expects to better understand how payment settlements can be efficiently streamlined in a private, secure and permissioned blockchain network, with better tracking and control of the exchange of funds.

IBM noted that this is one of several ways the bank is exploring the use of blockchain and creating a platform across the bank using the Linux Foundation Hyperledger code. They added that Mizuho is gaining confidence in the use of IBM’s distributed ledger technology and sharing results with other Hyperledger members.

“In this test, Mizuho will study the feasibility of blockchains with virtual currency in settlement business using the advanced applications development support service IBM Garage provided by IBM Japan,” notes the Mizuho press release. “IBM Japan will support Mizuho building a common platform to reform its development style such as designing and developing business applications using blockchains, with Mizuho's experience in system developments and IBM Japan's knowledge in global business services across various industries.”

Bitcoin right now is not really anonymous. While Bitcoin addresses aren't necessarily linked to real-world identities, they can be. Monitoring the unencrypted peer-to-peer network, analysis of the public blockchain and know your customer (KYC) policy or anti-money laundering (AML) regulation can reveal a lot about who's using Bitcoin and for what.

This is not ideal from a privacy perspective. To show some examples; Bitcoin users might not want the world to know where they spend their money, what they earn or how much they own, while businesses may not want to leak transaction details to competitors.

Additionally, bitcoins being traceable, possibly “tainted” and potentially worth less than other bitcoins is at odds with fungibility. This could even challenge Bitcoin's value proposition as money.

One solution to increase privacy and protect fungibility is to exchange bitcoins for fiat currency without being required to identify yourself.

The Problem

Exchanges, brokerages, money transmitters and other service providers that serve as the “on-ramps” and “off-ramps” between bitcoin and fiat currency, form an important part of the Bitcoin ecosystem. But from a privacy and fungibility perspective, a heavy reliance on these companies is not ideal: Practically all fiat-facing bitcoin-companies are required to apply AML/KYC-checks on their customers.

Moreover, these checks can be (and are sometimes) combined with wider blockchain-analysis, pertaining to the past trail of bitcoins, to in some cases even monitor where bitcoins move to after leaving these services. This allows for extensive mapping of the Bitcoin ecosystem. (In a recent blog post, R3CEV Director of Market Research Tim Swanson even described this as a “de facto Kimberley Process”.)
There are some ways to avoid these kinds of checks. Most obviously, users can exchange bitcoins for fiat outside of any exchange, for example, at Bitcoin meetups. But it becomes a bit more tricky online: Users need to trust their counterparty or maybe a dedicated middleman to actually send the bitcoins or wire the fiat currency. Alternatively, converting bitcoins to fiat currency can be done by purchasing Bitcoin debit cards such as Cryptopay or BitPlastic. Converting fiat currency to bitcoins, vouchers such as the Bitupcard may also offer a solution.

Most of these options, however, are rather expensive, clunky or both.

Local Exchange

A perhaps more sophisticated solution is the use of exchanges that don't require identity-checks; there are several.

The earliest of such alternatives is the Finland-based exchange LocalBitcoins, launched in 2012. As opposed to typical exchanges, LocalBitcoins is a platform that does not touch fiat currency itself. Instead, users send the fiat through typical wire transfers or other methods. And, as the name of the website suggests, users can also meet up locally and trade bitcoins for cash on the spot. This allows LocalBitcoins to be more lenient when it comes to AML/KYC-policies – although some sellers do require their counterparty to identify themselves through the LocalBitcoins-platform to some degree. (In the United States, some LocalBitcoins.com sellers have been charged under anti-money laundering laws.)

Building on this concept in 2014, the Mycelium mobile Bitcoin wallet introduced Local Trader: a Bitcoin exchange built right into the wallet. Mycelium users who want to buy or sell bitcoins for cash can make an offer on the Mycelium platform where they indicate a price and maximum distance they’re willing to travel. Once a match is made with another trader, they can meet up and complete the trade locally, typically with cash. The Bitcoin side of the trade is taken care of in-app, which also includes a reputation system.

Decentralized Exchange

However, even if the fiat side of the trade is handled locally, LocalBitcoins and Mycelium types of solutions still rely on a central intermediary to some extent: LocalBitcoins and Mycelium. And in the end, these companies can be required to apply AML/KYC-types of regulation as well - or be shut down entirely. (LocalBitcoins had to cease its operations in Germany back in 2014.) An interesting alternative, therefore, is fully decentralized exchanges that rely on no central intermediary to process fiat or Bitcoin transactions.

A first attempt at establishing a decentralized exchange was Coinffeine, launched in late 2013. Coinfeinne partly solved the counterparty risk – the risk of a trading partner not paying up – through a combination of security deposits and an incremental trading protocol. In short, both parties in a trade, deposit a specific amount of bitcoins into a two-of-two multi-address, requiring a signature from each to unlock. Subsequently, the trading partners trade in incremental amounts: no single trade is bigger than the security deposit. As such, neither trader has an incentive not to pay their part: they would lose their security deposit worth the same amount if they did.

Coinfeinne is a novel idea, but it doesn't hold up as nicely in practice. The security deposits leave room for certain types of fraud or extortion. A victim might, for instance, prefer to get half of his deposit back rather than nothing at all. Additionally, trading in incremental amounts is not exactly user-friendly nor fast, especially if it takes a wire transfer to complete each time.

More recently, the decentralized Bitcoin exchange Bitsquare launched. Bitsquare solved the counterparty problem with dedicated arbiters, as well as – again – security deposits. These deposits are locked up along with the traded bitcoins in a two-of-three multisig address where the third key is held by a dedicated and mutually agreed upon arbiter. As such, the buyer is incentivized to send the fiat currency; he'll lose his deposit otherwise. And once he receives the fiat curremcy, the seller is incentivized to release the bitcoins for the same reason. If either attempts to cheat, the arbitrator helps the victim get his bitcoins.

To prevent bank-chargeback fraud, Bitsquare limits trades to a maximum between .75 and 1.5 each, for now.

“Bitcoin bank” Circle is betting big on China. The company has announced that it raised $60 million in a new Series D funding round led by Beijing-based investment firm IDG Capital, an existing Circle investor. The company also announced the opening of its Chinese subsidiary Circle China, which had been separately funded earlier.

Participants in the new Circle funding round include global venture capital and private equity firm, Breyer Capital, General Catalyst Partners and a group of Chinese firms including; Baidu, China International Capital Corporation ALPHA, China Everbright Limited, Wanxiang and CreditEase. Individual investors include Sam Palmisano, former CEO and chairman of IBM, and Glenn Hutchins, co-founder of private equity firm Silver Lake.

Circle now has a solid network of partners in the region, notably including technology giant Baidu.

“Circle is one of the most impressive startups in the blockchain technology space,” said Peter Fang, executive director of Baidu corporate development. “Together with other influential investors, Baidu is very excited to partner with Circle team to build its vision successfully and globally."

Circle co-founders Sean Neville and Jeremy Allaire noted that the company is building a global payments network that will soon enable users in the U.S., Europe and China to exchange value seamlessly and nearly instantly.

“Today we announced two related milestones: a $60 million strategic financing from a syndicate of major Chinese strategic investors; and the formation of Circle China, a new Beijing-based company focused on bringing the benefit of open, global, blockchain-powered social payments to Chinese consumers,” said Neville and Allaire. “We want to connect consumers using dollars, pounds, euro and renminbi the same way that the web, email and other protocols have connected consumers globally.”

Circle China was formed six months ago as an independent Chinese company focused on bringing the benefits of open, global social payments to Chinese consumers, with a multi-million-dollar seed investment from many of the strategic investors in the new Series D round. Circle emphasizes its commitment to developing a China-native company with major Chinese owners and investors in both Circle China and Circle Global and being fully compliant with the laws and regulations of the Chinese payments and banking regime.

"We're not aiming to compete with the domestic market as that would be a suicide mission given the strength of local players like Alipay and WeChat but we can connect Chinese consumers with the euro zone and dollar markets," Allaire told Reuters, adding that Circle China has not yet launched a product, pending a deal with a local banking partner and a legal license to operate.

“IDG is very bold on Circle’s vision of blockchain and social payment,” said Hugo Shong, founding general partner of IDG Capital. “Just like the success of Alipay and WeChat pay here in China, we have full confidence in Circle team building global products which will be enjoyed by hundreds of millions of people daily.”

According to Circle’s founders, Chinese consumers will play a much bigger role in the global economy in the coming years. Therefore the renminbi will become a much more important currency in the world. Neville and Allaire mentioned remittances sent home by Chinese students and young professionals abroad as an important application of Circle’s services.

In April, Bitcoin Magazine reported that Circle was granted an e-money license by the U.K. Financial Conduct Authority and started offering British Circle users the ability to hold GBP and make GBP payments instantly with zero fees. Now the company is announcing that it is opening Circle Euro support to consumers in Spain as the first part of a broader European-wide rollout to occur over the coming month, once some remaining regulatory obstacles have been cleared.

“‘Lighting up Euro’ on Circle’s platform is critical in our effort to enable consumers everywhere to share value and is also important to our efforts in China,” noted Neville and Allaire, adding that the company is on track to exceed a billion dollars in transaction volume on an annual basis and the global customer base has grown by 300 percent over the past 12 months.

Forbes notes that Circle currently uses the Bitcoin blockchain, as opposed to alternative or private blockchains, to settle payments. In fact, in November Allaire wrote a thoughtful analysis of the blockchain vs. bitcoin issue and explained the advantages of the Bitcoin blockchain over alternative implementations. However, Allaire noted that Circle is open to using any public blockchain as long as it has good software support, distribution among merchants and consumers, a global liquid market and enough scale to be secure, as reported by Forbes.